Big rise in UK energy bills likely this spring despite price cap | Money

Millions of consumers face a big rise in their energy bills from April when an increase in the new price cap is likely to take effect, the energy regulator has warned.

Around 11m households on default tariffs saw their bills capped last week in a huge shakeup of the market, resulting in an average saving of £76.

But Dermot Nolan, the chief executive of Ofgem, said customers should be ready to pay much more when he publishes an updated level on the ceiling in February, which will take effect in April.

“Wholesale costs have risen significantly over the past year. As a result it is likely we will announce an increase, potentially a significant one, on the level of the cap,” he told an industry audience in London.

He reassured consumers, however, that they could be confident that any increase would reflect the “actual costs of supplying energy”, rather than firms profiteering.

Analysts are expecting a high single digit percentage rise of nearly £100 for a typical annual fuel dual bill.

Asked whether consumers had been mis-sold by Theresa May on the election campaign trail when she promised consumers would make savings, the energy minister Claire Perry said the government had been “absolutely clear” that the measure was a price cap, not a price freeze.

“We do think energy prices will continue to move, to go up or down,” she said. Consumers would still be better off with the cap than without it, she added.

Ofgem must review the level of the cap twice a year, in February and August, to reflect the costs facing suppliers. Perry described the current £1,137 limit for a typical household as a “fair deal”.

The minister also said she was concerned at the costs faced by all consumers from picking up the pieces of a “striking” number of energy suppliers collapsing.

Economy Energy, with nearly a quarter of a million customers, ceased trading this week, becoming the ninth small supplier in a year to fail.

The minister said the government and Ofgem were monitoring the costs, which have spiralled into the tens of millions as renewable energy subsidies have gone unpaid.

But she rejected the notion, put forward by one small supplier which went bust before Christmas, that the cap was to blame.

“There is no correlation between supplier failures and the price cap, and when people conflate those two things I find it a little alarming,” she said.

Martin Cave, the new chairman of Ofgem, said that while competition was thriving because of new entrants to the market, there had been some downsides.

“Arguably too many suppliers have come into the market with unsustainable business models. This can manifest itself in shoddy customer service, triggering more enforcement action by Ofgem against the worst offenders,” he said.

He said the regulator has responded by looking at tougher checks for new entrants, as well as changing the rules on what customer credit balances firms can hold.

Renewable Obligation payments are currently paid annually. In the case of Economy Energy, it left a £13m bill that all suppliers – and ultimately customers – will pay.

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The Guardian understands that one small supplier, Eversmart, has withdrawn a tariff that asked customers to pay their annual bill in advance, providing the firm with unusually large credit balances.

Cave said that he was also contemplating whether regulation was needed for price comparison websites, which most consumers use to switch energy supplier, and a new breed of auto-switching services.

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